When you have a mortgage, you pay a sum every month to cover a portion of your principal and interest. Although lenders require monthly payments, some give borrowers the option to pay on a different schedule. Making biweekly payments can be beneficial, but it also has downsides.
Paying Biweekly Can Help You Pay off Your Loan Sooner
If you pay your mortgage monthly, you’ll make 12 payments per year. If you pay half your bill every two weeks, you’ll make 26 biweekly payments since there are 52 weeks in a year. That’s the equivalent of making 13 monthly payments.
To benefit financially, you’ll have to inform the lender that you want that extra money to be applied to your loan principal. Those additional funds will chip away at your principal faster and reduce the amount you’ll pay in interest because interest charges are based on the loan balance.
You might think that paying one additional month’s worth of principal each year won’t make much of a difference, but it can. Remember that a mortgage is a long-term debt. Over a period of a decade or more, those extra payments can save you thousands of dollars in interest.
Making Biweekly Payments Can Help You Manage Your Money
Many people get paid every two weeks. If you’re one of them, making half of your monthly mortgage payment each time you get paid might be easier than paying the entire bill all at once. If you make automatic payments, you will be able to pay extra without having to think about it or do any additional work.
Biweekly Payments Can Help You Build Equity
Making an extra mortgage payment each year can help you build equity that you can use for home improvements and other expenses. If you currently pay for private mortgage insurance, you’ll be able to eliminate that obligation sooner and save money every month.
Paying off Your Mortgage Early Can Give You Financial Freedom
Eliminating your mortgage debt ahead of schedule can give you greater financial stability and peace of mind. Once you pay off your home loan, you’ll feel more financially secure as you head into retirement, and you’ll have more money to spend on travel and other things that you enjoy.
Why Biweekly Payments Might Not Make Sense for You
Some lenders charge fees if borrowers want to change their payment schedules. Lenders also sometimes charge prepayment penalties if homeowners pay off their loans ahead of the predetermined schedule. If paying more frequently will cost you extra, the benefits might not outweigh the additional cost.
Talk to Your Lender
Paying your mortgage biweekly can reduce your balance faster and save you thousands of dollars in interest without straining your budget. Before you start paying every two weeks, contact your lender to find out if you would incur any additional fees.
Even if the lender won’t charge you fees, it might have to approve your request to pay biweekly.
